As per the principle of mutuality, any income arising to a trade, professional or similar association does not partake character of income and thereby not taxable. However if deficiency arises, then it is allowed in accordance with provision of this section.
Meaning of Deficiency – Amount received during a previous year by an trade, professional or similar association from its member, whether by way of subscription or otherwise excluding remuneration received for rendering any specific services to such member, falls shorts of the expenditure incurred for the purpose of protection or advancement of the common interest of its members excluding capital expenditure or expenditure allowed under any provision of this Act, incurred by such association during that previous year.
The deficiency so incurred shall be allowed in computing the income for the relevant assessment year under the head “Profits and gains of business or profession” and if there is no income assessable under this head or its exceeds such income then the whole or the balance of deficiency shall be allowed as a deduction in computing the income of association for the relevant assessment year under any other head.
Additional Points:-
- The effect of this section shall be allowed after giving effect of all the other provision of the Act under which any allowance or loss in respect of earlier assessment year is carried forward and set off against the income of the relevant assessment year.
- The deficiency allowed as a deduction under this section shall in no case exceed one half of the total income of the association as computed before making any allowance under this section.
- If any deficiency remains unabsorbed after giving effect to the above provision, the same shall not be allowed to be carried forward.
- This section applies only to that trade, professional or similar association the income of which or any part thereof is not distributed to its member except as grants to any association or institutions affiliated to it.
